Home equity loan vs HELOC in 2027: rates, uses, and which one fits your situation
Home equity loans give you a lump sum at a fixed rate; HELOCs give you a revolving line at a variable rate. With home equity at record highs and rates still elevated, this guide covers how each product works in 2027, current rate spreads, risk factors, and the best use cases for each.
US homeowners are sitting on record equity — the average homeowner with a mortgage has over $300,000 in tappable equity in 2027. The question is which product makes sense: a home equity loan with payment certainty, or a HELOC with flexibility. Here is how the two products compare at current rates.
Side-by-side comparison
| Feature | Home equity loan | HELOC |
|---|---|---|
| Disbursement | Lump sum at closing | Draw as needed during draw period |
| Rate type | Fixed | Variable (prime + margin) |
| 2027 typical rate | 7.0–9.0% | 8.0–10.5% |
| Repayment | Fixed monthly P&I from day one | Interest-only during draw; P&I in repayment |
| Draw period | N/A — one disbursement | Typically 10 years |
| Repayment period | 5–30 years (chosen at close) | 10–20 years (after draw ends) |
| Best for | One-time expense with known cost | Ongoing or phased needs |
| Rate risk | None (fixed) | High in rising-rate environment |
| Closing costs | Typically 2–5% of loan amount | Usually lower or waived by lender |
Best use cases for each product
- Home renovation with firm budget
- Debt consolidation at a fixed rate
- College tuition payment schedule
- Large one-time purchase (vehicle, medical)
- Anyone who wants rate certainty
- Phased renovation projects
- Emergency reserve / financial backstop
- Business capital with variable draw needs
- Short-term bridge before selling the home
- Those expecting rates to fall (variable benefit)
Equity available to borrow: how lenders calculate it
External references
- CFPB — Home equity loan guide
- CFPB — HELOC guide
- CFPB — HELOC draw period end explained
- IRS Topic 505 — Interest expense deductibility
- Federal Reserve — H.15 Selected Interest Rates
- HUD — Home rehabilitation programs
Common questions
What is the difference between a home equity loan and a HELOC?
A home equity loan (also called a second mortgage) disburses a lump sum at a fixed interest rate, repaid over a set term — typically 5–30 years. A HELOC (Home Equity Line of Credit) works like a credit card secured by your home: you borrow and repay during a draw period (usually 10 years), then repay the outstanding balance during a repayment period. The CFPB home equity loan guide and CFPB HELOC guide cover both products in detail.
What are typical rates for home equity loans and HELOCs in 2027?
Home equity loans in 2027 typically carry fixed rates of 7.0–9.0% depending on LTV, credit score, and loan term. HELOCs are variable, typically priced at the prime rate plus a margin of 0.5–2.0% — with the US prime rate at 7.5–8.5% in 2027, effective HELOC rates run 8.0–10.5% initially. Check the Federal Reserve H.15 Selected Interest Rates release for current prime rate and consumer credit benchmarks.
How much home equity can I borrow against?
Most lenders allow combined loan-to-value (CLTV) of 80–90% — meaning your first mortgage plus the equity product cannot exceed 80–90% of the home's appraised value. On a $500,000 home with a $300,000 first mortgage balance, an 85% CLTV limit allows $125,000 in additional borrowing ($500,000 × 85% − $300,000). The CFPB's equity borrowing decision guide walks through how lenders calculate available equity.
Is the interest on a home equity loan or HELOC tax deductible in 2027?
Under the Tax Cuts and Jobs Act (2017), interest on home equity debt is deductible only if the funds are used to "buy, build, or substantially improve" the home securing the loan. Using a HELOC for debt consolidation or personal expenses is not deductible. The interest deduction applies to combined mortgage debt up to $750,000 (for loans originated after December 15, 2017). The IRS Topic 505 on interest expenses and IRS Publication 936 provide the current deductibility rules.
What are the risks of a HELOC in a rising rate environment?
HELOCs carry variable rates tied to the prime rate — when rates rise, monthly payments increase automatically. A borrower with a $100,000 HELOC balance at prime + 1% sees their payment increase by $83/month for every 1% rate increase. The draw period can also create payment shock when it ends and the full balance becomes due or enters repayment. The CFPB HELOC draw period guide explains what borrowers face at the end-of-draw transition.
Which is better for a home renovation: a home equity loan or HELOC?
For renovations with a defined budget and timeline, a home equity loan's fixed rate and lump sum provide cost certainty. For phased projects where costs are uncertain or you want to draw funds as needed, a HELOC's flexibility is more efficient — you only pay interest on what you draw. The HUD home rehabilitation programs guide also covers Title I home improvement loans, which are an alternative for borrowers with less equity.
See how your existing mortgage balance affects available equity on the mortgage calculator — or compare all equity access options in the home equity glossary entry.